The pension wealth gap: How inequity is baked in

Women are unfairly disadvantaged by the pension system when it should be working to address unfairness, a conference heard last week.

Jar of coins with a label saying "Retirement"


The pension wealth gap between men and women is barely moving, with the private pensions system and pensions tax relief skewed in favour of those who don’t take on the lion’s share of caring responsibilities, a senior lecturer told a conference last week.

Jonquil Lowe, Senior Lecturer in Economics and Personal Finance at the Open University, told the annual conference of CHASM [the Centre on Household Assets and Savings Management] that women who do most of the unpaid caring, are disadvantaged by the current system.

She said HMRC’s work on the gender wealth gap tends to assume a level playing field. “They fail to take account of women’s ability to take advantage of what is offered and the particular circumstances of the people involved,” she said. While the state pension is now more gender equal, she said it was initially designed in a way that disadvantaged women who took career breaks, were lower paid or reduced their hours. Since NI credits were introduced there has at least been a recognition of unpaid work, she said, and since 2016 there has been a flat rate pension which has generally favoured women – at least in the short term.

Private pensions

Lowe said that the private pension system is another matter, being based solely on paid work, with the sums accrued ‘exaggerated’ due to the pension tax relief system. She said pension tax relief favours those who can put the most into their pension. She cited research showing 71% of tax relief on defined contribution pensions goes to men.

Lowe said this was not justifiable on fairness or gender equity grounds and is not in line with the aims of the policy. She said the policy was not really increasing saving, just shifting it around, with auto enrolment being the main driver of more saving in the last years. She added that there was low awareness of pension tax relief.

Lowe asked whether the tax relief – estimated to be around £51.6bn – could be redeployed to target those who need it most – those who are forced to make “the rational choice” to take career breaks or work reduced hours to care for others, with all the impact that might have on their career progression and their ability to save for their old age. She said it makes sense for women to focus on the here and now and think about their children rather than to save for tomorrow.

What could make a difference?

She also listed all the other reasons women tend to have lower pensions – from traditionally female jobs being less well paid to childcare costs. Lowe suggested a combined approach focused on the individual and the state is needed. For the individual that might mean greater financial education, for instance.

When it comes to policies that can make a difference, she listed, for example, properly shared parental pay [she cited Sweden’s use it or lose it approach to paid paternity leave], carer credits, requiring a working partner to contribute to their non-working partner’s pension, embedding greater flexibility in better paid jobs, making jobs more compatible with caring responsibilities and ensuring pension contributions are based on normal pay during parental leave.

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